Why NAB's Walter must explain her fight to investors

Division at Australia's largest financial institution is letting
shareholders down, says John Currie.

Retail shareholders are confused and disappointed over events at
the National Australia Bank in the
past few months. It has become
almost unbelievable. The latest
boardroomsaga is reminiscent of
action taken by the Coles Myer
board against Solomon Lew 18
months ago.

It is worth reflecting on some
of the recent events at NAB. Over
$4 billion was lost by the bank in
the HomeSide fiasco in the US
about four years ago. This was an
expensive, but salutary lesson for
NAB in terms of due diligence
and accountability.

Many retail shareholders still
believe the events leading up to
the HomeSide loss were not
adequately explained to them
and that there was a lack of
accountability within the bank
following the fiasco.

With that bad taste still in
their mouths, shareholders then
discovered that currency traders
- described by Tom Wolfe as
"masters of the universe" - had
decided they could beat the markets
by excessive gambling with
shareholders' money. In an
attempt to achieve their six-figure
bonuses, they manipulated the
loose NAB control systems at a
cost to shareholders of $360 million.

This was the last straw for
shareholders and they rightly
demanded accountability at the
highest level. Firstly, chief executive
Frank Cicutto resigned and
then chairman Charles Allen followed.

The final crunch for shareholders
came on Friday. Following
market rumours, new NAB
chairman Graham Kraehe
announced that Cathy Walter,
the previous chairwoman of
NAB's audit committee (Mr
Kraehe was also amember of this
four-person committee), no
longer had the support of the
board. A meeting of shareholders
would be called to remove her as
a director.

Shareholders are left wondering
how this dispute degenerated
into a situation where one of Australia's
largest companies felt the
need to call for the removal of a
long-standing director.

The NAB board has said that
its concerns about Mrs Walter are
not related to the currency trading
investigations, nor her previous
role with the audit
committee, nor her right to
express a separate view. However,
retail shareholders believe
directors should be accountable
for their actions, or non-actions
in some cases.

The NAB audit committee
plays a vital role in the oversight
of the bank's systems and procedures
and Mrs Walter was
chairwoman of that committee
for more than three years. She
was remunerated for that job and
must be held accountable for a
situation described in a report by
the Australian Prudential Regulation
Authority where "NAB's
internal control systems failed at
every level to detect and shut
down the irregular currency trading
activity".

APRA reported that "the audit
committee became too focused
on ensuring process was in place,
without understanding or inquiring
into the substantive issues
underlying what was being put
before it by management or
adequately probing inconsistencies
or warnings".

The NAB board has now
raised issues leading to "irreconcilable
differences" with Mrs
Walter.

Shareholders understand that
on occasions a director may disagree
with the view taken by a
majority of the board. This is part
of boardroom debate in any
robust organisation. However, if
one director has a view that is
diametrically opposed to that of
all of her colleagues, and then
perhaps acts on those views, a
serious situation arises.

If Mrs Walter cannot reconcile
her views with those of other
directors and an antagonistic
attitude develops within the
board, she should resign and give
an explanation for her action.
Mrs Walter has refused to resign
and the board has called a meeting
of shareholders to remove her.

Shareholders expect that the
board will give her every opportunity
in the notice calling the
meeting to explain her reasons
for not resigning, so that an
informed decision can be made.
It is important that this matter
is resolved quickly so that the
bank can remove market concerns
and demonstrate that it is
operating at the highest standards
of governance.